Let’s be honest—the way we own stuff is changing. Fast. Instead of buying a washing machine, you might subscribe to one. Instead of purchasing industrial equipment, a factory might pay for the outcomes it delivers. This shift, part of the broader circular economy, is turning products into services. And it’s throwing a massive, fascinating wrench into the world of insurance.
Why? Well, traditional insurance is built on a simple premise: you own an asset, you insure that asset against damage or loss. But what happens when no one “owns” the asset in the old-fashioned sense? When responsibility is shared, or fluid, or tied to performance? That’s the puzzle we’re diving into today.
From Ownership to Access: A Fundamental Shift
First, a quick sense of the landscape. The circular economy aims to eliminate waste and keep resources in use. Product-as-a-Service (PaaS) is a key player here. Think: lighting-as-a-service, car subscriptions, or even furniture leasing. The manufacturer retains ownership—they’re incentivized to build durable, repairable products. The customer pays for access.
This flips the script. Suddenly, risk isn’t a one-time event at point-of-sale. It’s a continuous, shared journey. The insurer’s role has to evolve from simply covering a static asset to facilitating a dynamic, circular flow of value. It’s less about insuring a thing and more about insuring a relationship and an economic model.
Where the Traditional Policy Falls Short
Standard property or liability policies often hit a wall here. They’re not designed for the blurred lines of PaaS. Here’s where the gaps appear:
- Ambiguous Liability: If a leased industrial robot malfunctions and causes a production halt, who’s liable? The manufacturer? The operator? The service contract holder? Traditional policies draw hard lines; circular models smudge them.
- Valuation Headaches: Insuring a product that’s designed to be refurbished and re-leased multiple times is tricky. Its value isn’t just depreciating—it might fluctuate with its refurbishment cycle and remaining useful life. How do you underwrite that?
- Moral Hazard: If the user doesn’t own the asset, do they have the same incentive to care for it? Possibly not. That changes the risk profile fundamentally.
- Data & Cyber Exposure: These models are data-hungry. They rely on IoT sensors to track usage, performance, and maintenance needs. That creates a new attack surface—cyber insurance becomes intertwined with product insurance.
New Risks Demand New Insurance Solutions
So, what’s emerging? Insurers and innovators are starting to build coverage that fits this new reality. It’s not just tweaking old policies; it’s reimagining them.
1. Performance Guarantee Insurance
This is a big one. If a company sells “cooling-as-a-service” for a data center, they guarantee a specific temperature outcome. Performance insurance can back that guarantee, covering the financial loss if the system fails to deliver. It shifts the focus from “did the machine break?” to “did the service outcome fail?”
2. Embedded and Parametric Insurance
Insurance gets woven directly into the service contract. Imagine your subscription for a high-end power tool includes automatic coverage for wear-and-tear or accidental damage—baked right into the monthly fee. Parametric insurance, which pays out based on a predefined trigger (like “machine downtime exceeds 24 hours”), fits perfectly here. It’s fast, reduces disputes, and aligns with the data-driven nature of PaaS.
3. Circular Asset Insurance
Specialized policies that acknowledge an asset’s circular journey. Coverage can follow the product through its life stages: first use, refurbishment, secondary lease, and eventual recycling. The insurer becomes a partner in maximizing the asset’s economic life, not just a payer of claims.
The Data Dilemma: Friend and Foe
Here’s the deal—data from IoT sensors is the golden key for making this work. It allows for usage-based insurance (UBI) models. Premiums could be based on actual hours of operation, intensity of use, or even how well maintenance protocols are followed.
That’s powerful. But it’s also a minefield. Who owns that data? The manufacturer, the user, the insurer? How is it secured? The transparency is great for risk assessment, but the privacy and security implications add a complex layer. Insurers will need to be data managers as much as risk carriers.
A Look at the Stakeholders: Who Needs What?
| Stakeholder | Primary Risk Concern | Insurance Need |
| Manufacturer/Service Provider | Asset damage during user possession; liability for service failure; revenue loss from downtime. | Product-in-use liability; performance guarantee coverage; business interruption for service models. |
| Business Customer (User) | Operational downtime; hidden costs in service contracts; liability gaps. | Contingent business interruption; clarity on liability limits within service agreement. |
| Insurer | Understanding new risk pools; data accuracy; moral hazard. | New actuarial models; partnerships with tech providers; IoT data verification tools. |
You can see the interdependency. It’s no longer a simple two-party transaction. It’s an ecosystem.
Final Thoughts: A Necessary Evolution
Look, the circular economy and PaaS models aren’t a fringe trend. They’re a logical, sustainable response to resource constraints and changing consumer preferences. For the insurance industry, this isn’t just a niche product line—it’s a fundamental test of adaptability.
The winners will be those who move beyond seeing insurance as a static safety net. Instead, they’ll act as enablers—the risk management backbone that allows this more sustainable, service-oriented economy to thrive with confidence. They’ll partner with manufacturers, embrace data (cautiously), and design policies as flexible as the models they protect.
In the end, it’s about aligning incentives. When insurers, businesses, and manufacturers all have a vested interest in the longevity and performance of a product, that’s a powerful force. It turns risk management from a cost of doing business into a core part of the value cycle itself. And that… well, that’s a future worth insuring.